CH 19

For CPAs who are neither functioning as auditors or working in business, only Part(s) _____ of the AICPA Code of Professional Conduct is applicable. 3 2 Parts 1 and 3 1 Parts 2 and 3

3

A private, nongovernmental association which only has the authority to require its members to comply with the Code of Professional Conduct as a condition of continued membership is the _____. SEC FASB AICPA IRS

AICPA

Which of the following entity's standards of professional conduct are considered to provide the broadest map of areas in which professionalism is expected from auditors? SEC PCAOB AICPA

AICPA

Which of the following entity's standards of professional conduct are the least stringent? AICPA SEC PCAOB

AICPA

An auditor auditing a privately-held entity must follow ____ standards. PCAOB ASB SEC

ASB

An auditor auditing a privately-held entity must follow ____. SEC standards ASB standards AICPA Code of Professional Conduct PCAOB auditing standards

ASB standards AICPA Code of Professional Conduct

If a CPA works both as an auditor and in another business capacity, which of the following statements is true regarding the AIPCA's Code of Professional Conduct? Part 2 applies to this CPA, but Part 1 does not. Both Parts 1 and 2 apply to this CPA. The Code does not apply to this CPA. Part 1 applies to this CPA, but Part 2 does not.

Both Parts 1 and 2 apply to this CPA.

Which of the following entities has been allowed to set accounting and auditing standards? IRS FASB ASB SEC

FASB ASB SEC

True or false: Safeguards to identified threats to a CPA's integrity and objectivity should be independent of the specific circumstances.

False (Safeguards to identified threats to a CPA's integrity and objectivity will be highly dependent on the specific circumstances.)

True or false: A CPA has a close family member who owns a computer repair business. Recommending the repair business to a client is not a conflict of interest as long as the CPA is not an owner in the repair business

False (The relationship could be viewed as impairing the CPA's objectivity and is a conflict of interest)

Additional guidance for applying the Rules of Conduct is provided by The _____. Principles of Professional Conduct Interpretations of Rules of Conduct Preface to the Code of Professional Conduct Parts 1 - 3 of the Code of Professional Conduct

Interpretations of Rules of Conduct

AICPA

Is a private, nongovernmental association with no legal authority.

Which of the following organizations have established stringent standards of professional conduct, mostly in the area of auditor independence? FASB AICPA PCAOB SEC

PCAOB SEC

Which of the following parts of the AICPA Code of Professional Conduct applies only to CPAs in public practice? Part 1 Part 3 Part 2 The Preface

Part 1

FASB

Permitted by the SEC to set standards, but does not oversee the profession

The framework for the Rules of Conduct is provided by The ____. Parts 1 - 3 of the Code of Professional Conduct Interpretations of Rules of Conduct Preface to the Code of Professional Conduct Principles of Professional Conduct

Principles of Professional Conduct

Which of the following is specifically enforceable? Both the Rules of Conduct and the Interpretations of Rules of Conduct Rules of Conduct only Interpretations of Rules of Conduct only

Rules of Conduct only

Legal authority to oversee the accounting profession rests with the ______. ASB IRS AICPA SEC FASB

SEC

Which of the following organizations have established stringent standards of professional conduct, mostly in the area of auditor independence? SEC PCAOB AICPA FASB

SEC PCAOB

Auditors of publicly held companies must follow the ____. SEC professional conduct requirements Auditing Standards Board PCAOB Code of Professional Conduct

SEC professional conduct requirements PCAOB Code of Professional Conduct

Which of the following principles of professional conduct requires CPAs to determine that services are consistent with acceptable professional behavior? Objectivity and independence Integrity Scope and nature of services Due care

Scope and nature of services

ASB

The Auditing Standards Board is a technical committee of the AICPA and does not have legal authority

Which of the following part(s) of the ICPA Code of Professional Conduct apply to all CPAs? Part 2 only Both the Preface and Part 1 Part 3 only Both The Preface and Part 3 The Preface only Both the Preface and Part 2

The Preface only

True or false: The Code of Professional Conduct places responsibility for ethical behavior squarely on the professional.

True (Responsibility is clearly on the professional, regardless of whether there are specific interpretations in place to add the situation.)

The first two principles of the Code of Professional Conduct reinforce that ______. a CPA's role is to serve the public members should perform all professional responsibilities with the highest integrity a member should use due care a member should maintain objectivity and be free of conflicts

a CPA's role is to serve the public

Safeguards to threats to a CPA's integrity and objectivity include ______. additional training meetings with the audit partner and company CEO Involvement of an otherwise uninvolved third party hotlines on ethical matters

additional training Involvement of an otherwise uninvolved third party hotlines on ethical matters

The Preface of the Code of Professional Conduct ____. applies to all CPAs defines ideal principles of professional conduct requires independence, integrity and objectivity sets out specific mandatory rules of conduct

applies to all CPAs defines ideal principles of professional conduct

Part 3 of the AICPA Code of Professional Conduct applies to CPA who work _____. as accounting instructors as governmental auditors as auditors for private companies in business but not as auditors

as accounting instructors

Disadvantages in applying the utilitarian theory to ethical dilemmas include _____. balancing the interests of all parties involved difficulty in measuring potential costs and benefits it may be impossible to satisfy all rights of the affected parties

balancing the interests of all parties involved difficulty in measuring potential costs and benefits

To be a credible source of objective and independent assurance, a profession must have a solid reputation for _____. character competence integrity intelligence

character competence integrity

Due care requires that the CPA perform his or her professional responsibilities with ______. competence independence diligence objectivity

competence diligence

Scope and nature of services requires that a CPA ______. maintains and broadens public confidence determines that services rendered are consistent with acceptable professional behavior firm ensures no conflict of interest exists firm ensures services are delivered competently strives continually to improve competence and quality of services.

determines that services rendered are consistent with acceptable professional behavior firm ensures no conflict of interest exists firm ensures services are delivered competently

Part 2 of the AICPA Code of Professional Conduct _____. does not require independence applies to CPAs who neither work as auditors not work in business defines ideal Principles of Professional Conduct expected by all CPAs applies to CPAs who are working in business but who are not issuing assurance reports on which the public will rely

does not require independence applies to CPAs who are working in business but who are not issuing assurance reports on which the public will rely

The CPA is required to perform his or her professional responsibilities with competence and diligence under the principle of ______ _____.

due care

The justice-based approach emphasizes _____. the action that provides the greatest good for the greatest number of people should be selected equity, fairness, and impartiality the value of an action is determined solely by the consequences of the action on the welfare of individuals social and economic actions should be to everyone's advantage and the benefits available to all each person has a right to have the maximum degree of personal freedom that is still compatible with the liberty of others

equity, fairness, and impartiality social and economic actions should be to everyone's advantage and the benefits available to all each person has a right to have the maximum degree of personal freedom that is still compatible with the liberty of others

A code of conduct based on moral duties and obligations that indicate how an individual should interact with others in society is known as _____.

ethics

The successful functioning of nearly every aspect of society, from law to medicine, family life to government is underpinned by _____. regulation quality control ethics professionalism

ethics

When a CPA has such a close, long-standing relationship with a client that it has become difficult to maintain objectivity it is called a(n) ______ threat. undue influence advocacy familiarity self-interest

familiarity

Match each of the following threats to a CPA's integrity and objectivity with its description. management participation threat familiarity threat self-review threat undue influence threats _____________________ CPA is in a position to be evaluating his or her own judgments CPA becomes involved in decision-making for the client and loses objectivity CPA has close, long-standing relationship with client and it becomes difficult to remain objective CPA is pressured due to another party's aggressiveness or dominant personality

familiarity threat: CPA has close, long-standing relationship with client and it becomes difficult to remain objective management participation threat: CPA becomes involved in decision-making for the client and loses objectivity self-review threat: CPA is in a position to be evaluating his or her own judgments undue influence threats: CPA is pressured due to another party's aggressiveness or dominant personality

The principle of objectivity requires the CPA to be ______. independent in fact independent in appearance free of conflicts of interest impartial

free of conflicts of interest impartial

A conflict of interest may occur if a CPA ______. has a financial interest in a product he or she is recommending disagrees with his or her supervisor about recording a transaction fails to disclose material facts to his or her employer's external accountants

has a financial interest in a product he or she is recommending

Integrity requires that a CPA ______. honor both the form and spirit of ethical standards be candid focuses on serving the public be honest be free of conflicts

honor both the form and spirit of ethical standards be candid be honest

A CPA is required to avoid relationships that would impair his or her objectivity under the principle of ______.

independence

A CPA who is honest and candid and honors both the form and the spirit of ethical standards is said to have ______. due care independence objectivity integrity

integrity

The bedrock of the profession of public accountancy are ______. responsibility and education integrity and objectivity independence and due care

integrity and objectivity

The first section in Part 1 of the AICPA Code of Profession Conduct includes the Code's ______ rule. financial relationships integrity and objectivity independence family relationships

integrity and objectivity

According to the rights-based theory, when an auditor has a disagreement with management over an accounting or reporting issue, the auditor should emphasize the ____. interests of management interests of the investors and creditors greatest good for the greatest number of people auditors rights

interests of the investors and creditors

The "nitty gritty" details in implementing the rules in Part 1 of the Code of Professional Conduct are found in the ______ of each rule.

interpretations

A CPA who is an accounting instructor ______ subject to the Integrity and Objectivity Rule. is is not

is

Ethics _____. is a code of conduct based on moral duties and obligations that indicate how an individual should interact with others means valuing self-interest above recognizing and respecting the interests of others is a system of monitoring and inspecting to ensure quality underpins the successful functioning of nearly every aspect of society

is a code of conduct based on moral duties and obligations that indicate how an individual should interact with others underpins the successful functioning of nearly every aspect of society

Equity, fairness, and impartiality are central to the ___. rights-based approach professionalism-based theory justice-based approach utilitarian theory

justice-based approach

The first principle of the _____ posits that each person has a right to have the maximum degree of personal freedom that is still compatible with the liberty of others. utilitarian theory professionalism-based theory rights-based approach justice-based approach

justice-based approach

Professions establish rules that define ethical behavior so that _____. members of the profession know what's acceptable users of the professional services know what to expect when they purchase services lawsuits can succeed against a professional members of the government know when someone is unprofessional

members of the profession know what's acceptable users of the professional services know what to expect when they purchase services

The first two principles of the Code of Professional Conduct address a CPA's responsibility to exercise ______. moral judgment due professional care professional judgment objectivity and independence

moral judgment professional judgment

Auditors must be willing to see issues through the eyes of others and put the interest of other stakeholders ahead of their own self-interest and those of the CPA firm according to the concept known as the ____. utilitarian perspective professionalism perspective justice-based approach moral point of view

moral point of view

According to the Code of Professional Conduct, members employed in industry ______. must be candid and not knowingly misrepresent facts to the external accountants must be practical and objective when accepting gifts or entertainment should communicate concerns about materially misstated financial statements to the SEC

must be candid and not knowingly misrepresent facts to the external accountants

A CPA who works for a company as its controller or CFO, but not as an auditor _____. must be independent must comply with Part 2 of the AIPCA Code of Professional Conduct must be objective must comply with Part 1 of the AIPCA Code of Professional Conduct

must comply with Part 2 of the AIPCA Code of Professional Conduct must be objective

According to the Code of Professional Conduct, members employed in industry ______. should consider a substantial business interest in the company's software provider to ensure continuity of service must take steps to ensure that a disagreement with his or her supervisor does not result in subordination of judgment should communicate concerns about materially misstated financial statements to the FASB

must take steps to ensure that a disagreement with his or her supervisor does not result in subordination of judgment

When it comes to methods or theories of ethical behavior that the guide the analysis of ethical issues in accounting, ______. no single approach is necessarily better than another there is little, if any, overlap between the theories it is important to focus on the one best method to solve a specific ethical dilemma

no single approach is necessarily better than another

A profession must have a solid reputation for competence, and for unquestioned character and integrity to be a credible source of ____, independent ____.

objective, assurance

A profession must have a solid reputation for competence, and for unquestioned character and integrity to be a credible source of _____, independent _____.

objective, assurance

A CPA is required to be impartial and free of conflicts of interest under the principle of ______.

objectivity

The guidance provided by the Code of Professional Conduct starts at a conceptual level with the ____ and progressively moves to general _____ and then to detailed _____.

principles, rules, interpretations

The conduct, aims, or qualities that characterize a vocation is the definition of ____.

professionalism

The utilitarian theory _____. assumes that individuals have rights and other individuals have a duty to respect those rights proposes the interests of all parties should be considered focuses on the consequences of an action on the individuals affected recognizes decision making involves trade-offs between benefits and burdens of actions

proposes the interests of all parties should be considered focuses on the consequences of an action on the individuals affected recognizes decision making involves trade-offs between benefits and burdens of actions

Part 1 of the Code of Professional Conduct has the most stringent rules because it applies to CPAs who ______. work in the private sector provide assurance to the broader public audit nonprofit entities make financial and investing decisions

provide assurance to the broader public

Part 1 of the AICPA Code of Professional Conduct applies to all ______. professionals who work in the accounting field both public and private practice CPAs accountants public practice CPAs

public practice CPAs

The professional conduct requirements established by the SEC and PCAOB must be followed when auditing _____. both publicly and privately held companies privately held companies only publicly held companies only

publicly held companies only

Complying with the AICPA Code of Professional Conduct is ____. required by the FASB required by courts at the state and federal levels not required for CPAs who are not members of the AICPA a condition of membership in the AICPA required by most state-level boards of accountancy

required by courts at the state and federal levels a condition of membership in the AICPA required by most state-level boards of accountancy

Complying with the AICPA Code of Professional Conduct is _____. required by courts at the state and federal levels required by most state-level boards of accountancy not required for CPAs who are not members of the AICPA a condition of membership in the AICPA required by the FASB

required by courts at the state and federal levels required by most state-level boards of accountancy a condition of membership in the AICPA

Part 1 of the AICPA Code of Professional Conduct _____. requires independence applies to CPAs who are not working as auditors applies to governmental auditors

requires independence applies to governmental auditors

Integrity means that a CPA should make judgments that are consistent with the theories of ______. rights utilitarianism justice

rights justice

Because of their public-interest responsibility the _____ approach is important to auditors. justice-based rights-based utilitarian theory professional-based theory

rights-based

Professions establish rules that define ethical behavior _____. to avoid chaos. so the profession can use the rules to monitor the action of its members to ensure that all professionals act based on moral duties and obligations so the profession can use the rules to apply discipline when members violate the rules or codes of conduct

so the profession can use the rules to monitor the action of its members so the profession can use the rules to apply discipline when members violate the rules or codes of conduct

An auditor has the burden of justifying departures from _____. the Interpretations of Rules of Conduct only the Principles of Professional Conduct only both the Rules of Conduct and the Interpretations of Rules of Conduct

the Interpretations of Rules of Conduct only

When a CPA performs his or her duties with competence and diligence, the CPA is said to be ______. independent using due care impartial objective

using due care

It is often difficult to measure the potential costs and benefits of actions to be taken when applying the ____ theory to ethical dilemmas.

utilitarian

S.M. Mintz suggested three overlapping theories of ethical behavior including the _____ theory which recognizes that decision making involves trade-offs between the benefits and burdens of alternative actions.

utilitarian

Theories or methods of ethical behavior that can guide the analysis of ethical issues in accounting are the ____ approaches. utilitarian justice-based rights-based professionalism-based authority-based

utilitarian justice-based rights-based

The value of an action is determined solely by the consequences of the action on the welfare of individuals under the ____ approach. justice-based approach utilitarian theory rights-based professionalism-based theory

utilitarian theory